AM Best: US D&O insurers achieved best loss outcomes in 11 years in 2024

By Mia MacGregor

May 19 - (The Insurer) – Insurers providing U.S. directors and officers (D&O) liability coverage experienced their most favorable loss outcomes in over a decade in 2024, despite a challenging underwriting market and declining premium volume, according to a new AM Best report.

The report noted that the direct loss ratio for monoline D&O liability improved by more than 10 percentage points from its highest point over the last 11 years (2014-2024), which was 62.4 in 2017 and 2018.

D&O underwriters are still benefiting from significant rate and price increases and more conservative underwriting and policy terms that drove a dramatic shift in market dynamics in 2020 and 2021, according to AM Best.

As 2025 reaches its midpoint, the report noted that many market participants are concerned that recent pricing reductions leading to declines in D&O liability direct premiums written (DPW) over the past three years may not be sustainable.

This concern stems from the complex risks corporate executives are managing, including macroeconomic uncertainty, the evolving legal landscape and changing cyber risks.

While D&O liability premium for the entire industry was down in 2024, much of that decline occurred in the first quarter.

The report stated that the total D&O premium for the first quarter was the lowest in four years, but DPW increased in each subsequent quarter. The fourth quarter loss ratio was the lowest in seven years, improved by seven points over any other quarter, because of increased premiums and significant reserve takedowns.

AM Best noted that continued profitable results could sustain pricing pressure if insurers have little reason to raise rates, risking the loss of profitable business.

The report also highlighted significant exposure for D&O insurers from initial public offerings (IPO).

While IPO numbers rebounded somewhat in 2024, they remained lower than during the 2017 to 2021 period. Economic uncertainty, reflected by stock market fluctuations, may cause privately owned enterprises to reconsider entering the stock market due to less attractive valuations, according to AM Best.

AM Best also noted that M&A activity was expected to increase in 2025, potentially leading to more SPAC and de-SPAC activity. However, recent volatility related to tariffs and macroeconomic uncertainty complicates the outlook.

Securities class action lawsuits have become less concerning post-COVID, with claims returning to more stable levels that are akin to pre-2016 numbers, the report stated. While there was a slight uptick in total securities claims in 2024, it remains to be seen if this indicates a trend.

Additionally, the report noted that the 2016 to 2019 years of elevated securities class-action claims continue to develop adversely for insurers, with an additional $472 million of adverse development in 2024. These years culminated in a period when competitive forces held D&O liability premiums at inadequate levels for covered risks, amid increasing U.S. litigiousness.

The years 2018 and 2019 have shown a larger proportion of open claims. Schedule P, Part 5 data indicates that since 2020, these accident years have a larger than expected share of outstanding claims.

These open claims face pressures from social inflation and nuclear verdicts affecting new claims. The high number of securities claims from those years suggests more adverse development is likely, according to AM Best.

The report also highlighted several emerging risks facing the sector.

Technologies are evolving, requiring insurers to expend resources to understand these risks and effectively underwrite accounts using newer technology. AM Best noted that AI will play a significant role in the evolving risk landscape for corporate executives.

Additionally, proposed enforcement of climate-related risk disclosures has led to lawsuits against corporations and their directors and officers.

Cybersecurity attacks resulting in data breaches or stock price declines could expose D&Os for inadequate controls against cyber intrusions or poor disclosures about cyber risks, AM Best warned.

ESG and DEI issues related to policies and executive orders raise new risks, while tariffs and their impact also pose new challenges, potentially leading to an increase in lawsuits.